Murray River Organics flags heat damage ahead of capital raising
Written on the 31 January 2020 by Matt Ogg
With a farm lease exit requiring a $1.32 million surrender fee and a $4 million short-term loan looming with NAB, bad weather is the last thing dried fruit company Murray River Organics Group (ASX: MRG) needs right now.
On Tuesday the company was expected to come out of a trading suspension that has been in place since late November, but instead that was extended to next week and MRG announced more details about a long-awaited capital raising would be revealed "in the coming days".
The embattled food producer plans to raise at least $20 million from the equity raise, of which one fifth will be used to pay off the NAB loan that was made so it could progress with the FY20 harvest and continue to fund business operations.
After disappointing the market so many times over the past few years, often due to weather-related factors and their impacts on crops, transparency is paramount and MRG today opted to paint the clearest picture of its challenges before it starts rattling the tin.
The MRG board does not expect any changes to guidance, but has let investors know challenging weather conditions with prolonged periods of 40°C plus temperatures have had a negative impact on grape production at some of its 11 farms in the Sunraysia region.
Most of the damage has been on grape berries that were exposed to the sun.
"Since this heat event the district has experienced cooler conditions that has reduced further potential damage to MRG's vines," the company said.
"The crop potential for future years is not impacted by what is principally berry damage this harvest.
"Improved vine nutrition and irrigation practices implemented earlier this season have delivered increased canopy and cane growth which means that MRG's vineyards are better placed for an improved crop in the 2021 growing season."
The company added its table grape property at Fifth Street experienced minimal impact with harvests having commenced at the start of 2020.
As recently as November Murray River Organics was highlighting a 27 per cent rise in exports and a bullish outlook in China backed by a recently launched WeChat strategy, but two weeks later it announced the impacts of water costs, citrus pricing and product launch delays had altered its near-term projections.
Instead of the $1-3 million loss the company had previously flagged for FY20, the figures dropped further in the red to an expected $5-8 million.
As much as chairman Andrew Monk tried to shield the blow by emphasising the company's transformation was well underway and it would just take longer for the grape vines to return to good health, investors headed to the exits and MRG shares lost more than 20 per cent of their already shrinking value.
Two days later the shares entered into a trading halt, followed by a suspension from official quotation in early December while MRG negotiated its funding activities for the year ahead.
The first step of its capital management program was to exit a farm lease at a property in Colignan, where ongoing remediation - as on its properties in Yatpool and Gol Gol - is expected to take multiple seasons to complete.
The lease was restructured so that the land owner Arrow Funds Management would assume operational control of the farm.
"This new relationship with Arrow represents a significant step for both our companies as we work to realise the value of this significant dried vine fruit farm. MRG is committed to supporting the long-term growth of the dried vine fruit industry in Sunraysia," said CEO Valentina Tripp, who is now 20-months into her appointment to turn the company's fortunes around.
The exit entails a three-year supply relationship with Arrow and a surrender fee of $1.32 million of which $824,750 comes from a bank guarantee from NAB and $500,000 will come from the proceeds of the upcoming capital raising.
The group announced part of the consideration would involve giving Arrow a 5 per cent stake in MRG's share capital.
More than a month later the company struck a funding deal with NAB to accelerate a drawdown of $4 million, to be received in two tranches of $2 million at the start of January and the start of February.
Murray River Organics will need to pay this amount from the proceeds of the capital raising by 31 March, unless the parties agree to an extension, as well as a $10 million repayment by 30 June.
Following these repayments, the total size of the MRG's facility will be reduced to $40 million.
"This agreement with NAB was a crucial step as we head into the dried vine fruit harvest and our busiest time in Mildura," Tripp said at the time.
"It also allows us to present our refined strategy to shareholders and new investors as we commence the equity raising process after the Christmas break."
The company also announced it was exploring partnership arrangements to offload the significant vacant arable land at its Nangiloc property.
The first announcement made by the group however after the Christmas break was the resignation of director Keith Mentiplay.
"Keith stepped up as a director to oversee a particularly challenging transition time for the Company in 2018," chairman Andrew Monk said on 21 January.
"As part of an overall process of cost management and focus the Company will be maintaining a smaller board over the period ahead as it completes its balance sheet restructure and oversees the execution of its three year turn around and growth plan."
Business News Australia
Author: Matt Ogg